Wednesday, September 28, 2016

It’s Not Really About Deutsche Bank
"Deutsche Bank is not Commerzbank; in many ways Deutsche is the last remaining remnant of what is left of the reigning wholesale, eurodollar system. Where other banks long ago saw this depression for what it was (all risk, no reward), DB was siding with central bankers and deploying 'capital' into EM’s and junk bonds. The bank was reticent to reject its derivatives book, once a source of nearly all its power and strength. And it was dreams of reclaiming lost grandeur that drove the bank into its currently perilous state .. Whatever negative effect Deutsche may have been having already in eurodollar liquidity, these results will quite likely speed that up .. The close correlation of 'global turmoil' and negative swap spreads is not some accident of nature. Both are symptoms of the same chronic money disease. Given Deutsche Bank’s status as the largest single purveyor of balance sheet factors through derivatives and FX, we would expect such a close relationship with its own share price. It isn’t a bank run at least in the manner the general public or economists might recognize, but the processes are remarkably, dangerously similar – especially how they become self-reinforcing beyond some unknowable tipping point .. As has been the typical mainstream reaction, Deutsche Bank is being written about right now in a vacuum as if the actions and behavior (and losses) of last year were left only to last year .. They had to be strung together in a benign chain of distinct actions because convention still holds QE to be money printing. Ditching that convention has the effect of connecting all these dots as a logical and ongoing progression of a 'rising dollar' that is really a euphemism for 'dollar shortage.' ..  And it really doesn’t take too many dots to connect. This isn’t to say that Deutsche Bank is in danger of a wholesale liquidity run, only that the bank is perhaps far closer to it than anyone in the mainstream will ever admit. As I wrote last year, it really isn’t even about Deutsche Bank."
- Jeffrey Snider
LINK HERE to the essay

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